Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

How Politics Caused Fiscal Disaster

By

And how central banks threaten prosperity by printing money backed by nothing.

PrintPRINT
Editor's Note: This article was written by David Stockman, who was elected to U.S. House of Representatives for the 95th Congress and was reelected in two subsequent elections, serving from January 1977 until his resignation January 1981. He then became Director of the Office of Management and Budget under President Ronald Reagan, serving from 1981 until August 1985. He was the youngest cabinet member in the 20th century. After leaving government, Stockman joined Wall St. investment bank Salomon Bros. and later became a founding partner at New York-based private equity firm, The Blackstone Group. He left Blackstone in 1999 to start his own private equity fund, Heartland Industrial Partners, L.P., based in Greenwich, CT.


My proposition today is that we're in a fiscal calamity caused by the further, and perhaps, final triumph of politics. Admittedly, I issued this very same forecast awhile back -- 23 years ago to be exact. But I'm not reluctant to try again. Having read Grant's continuously since 1988, I've learned there's no shame whatsoever in being early -- even often!

The Triumph of Politics was published early, mainly in the unflattering sense that I'd not completed my homework. I was hip to statist fiscal and regulatory evils, but had only dimly grasped the Austrian masters' wisdom on money; that is, in printing money backed by nothing, central banks inherently threaten prosperity. So today I'll add the proposition that fiscal decay is the inevitable step-child of the very monetary rot that the Austrians -- Mises, Hayek, Rothbard -- so deplored.

My tardiness on money perhaps owes to the Reagan Revolution's disinterest. Secretary Don Regan averred that sound money could be readily attested by the height of the Dow while his deputy, a monetarist, gauged it by the width of M2.

Even Alan Greenspan, that is, Greenspan version 1.0, urged not to worry. Gold, he assured Ronald Reagan, was meant to anchor -- not the Fed's actual balance sheet, but something more ethereal, like perhaps its state of mind.

My libertarian screed thus omitted money while cataloging the Reagan Revolution's lesser shortcomings. These included gargantuan deficits, subsidies for favored Republican constituencies like farmers, homebuilders and exporters, a complete whiff on entitlements, and protectionism for dying industries like steel and textiles -- even for a motorcycle company whose ticker symbol, fittingly, was HOG.

Then, too, there were tax giveaways to real estate, oil and gas, and, come to think of it, to any other worthy industry with the foresight to hire a pair of Gucci loafers domiciled on K-street. On top of this, came the big defense budgets at a peacetime record 7% of GDP. Deep Federal deficits thus stretched as far as the eye could see.

Yet, I didn't perceive that this already alarming fiscal ledger would be further aggravated by two looming tectonic shifts. Oddly enough, these financial temblors were rooted in history's most consequential pair of train cars.

The first was the sealed car that took Lenin to Moscow in 1917 -- a 75-year trip to hell and back that finally ended in 1991 when a Moscow politician, whose normal confrontations were with a Vodka bottle, was inspired to mount a Soviet tank and command the Red Army to stand down. Promptly thereupon the US defense budget was stood down, too, dropping overnight to approximately 3% of GDP -- half its prior size.
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

PrintPRINT
 
Featured Videos

WHAT'S POPULAR IN THE VILLE